Healthcare crisis solved (with vouchers)

ByDavid C. RoseAugust 10, 2009

St. Louis — Democratic proposals to reform the American healthcare industry require too much faith in government while Republican proposals don't solve the problem of the uninsured.

The best known hybrid proposal, the Wyden-Bennett plan, overhauls the current insurance industry and solves the uninsured problem by mandating coverage. But as we have learned from Massachusetts' experience, enforcing mandated coverage is very difficult.

Americans deserve reform that deals with the three most important problems with American healthcare: (1) many people are uninsured, (2) those who have insurance worry that if they lose their job they might become locked out of the system because of a preexisting condition, and (3) many people are frustrated with increasingly intrusive insurance companies that treat patients more like criminals than customers. (Note that the skyrocketing cost of healthcare is not one of the Top 3 problems – more on that later.)

Any plan that doesn't address these three problems is inadequate. Any plan that requires nationalizing healthcare is excessive and prone to failure.

To get everyone in the system without mandating coverage, we should enact a national sales tax – 6 percent would be sufficient – on all goods and services. This revenue would pay for a voucher that every American citizen could use to buy a catastrophic health insurance policy.

Vouchers for healthcare? Absolutely. Vouchers work. We solved the hunger problem in America with vouchers in the form of food stamps. This program is efficient because it is simple, transparent, and works with, rather than against, market competition.

By significantly increasing competition, a voucher program will give us better service and cost control while dealing directly with the problem of the uninsured once and for all.

Those who don't exercise their vouchers would be randomly assigned healthcare insurance. Since catastrophic policies have high deductibles and copayments, the program would also provide a health savings account for poor people.

Such accounts provide money for deductibles and copayments, and any money not used each year can be claimed as cash. That incentive has been shown to turn patients into cost-conscious – and health-conscious – consumers.

For the working poor, most of the sales tax burden would be offset by the elimination of the Medicare tax, because this voucher program would supplant Medicare and Medicaid.

The rich spend more, so under a sales-tax plan they would obviously pay more. What do rich and middle-class people get out of this? They get an even better private healthcare system that, because it deals with the problem of the uninsured, would probably foreclose future efforts to nationalize healthcare.

To work properly, this program would require other changes:

First, remove the tax deduction for employer-provided health insurance. This delinks insurance from employment, so people will no longer have to fire their employer to fire their insurance company. This will increase competition between insurance companies.

Second, mandate that all policies accept people with preexisting conditions. Many health economists argue that this will push the sickest people into the most generous plans, so most people will end-up buying catastrophic policies. That's fine because these policies are more efficient and they largely obviate the need for intrusive insurance company oversight. After all, little oversight is needed when patients bear most of the cost of their decisions.

Third, enforce a one-price rule. Health insurance providers can charge whatever price they like but they have to charge everyone the same price. This would end cost-shifting, which would eliminate most of the advantage that large insurance pools have over small pools, thereby reducing premiums associated with small pools.

It would also eliminate the so-called preferred provider lists of in-network providers, thereby eliminating an additional cost of going out of the network for care. Provider lists are the product of large insurance companies using their bargaining power to negotiate lower reimbursement rates for their in-network providers. The problem is that providers still have to cover their fixed costs, so whenever they concede a generous deal to a large insurance company program, they have to raise the price elsewhere.

Under a voucher program, there is no government takeover, no price fixing, no rationing, no centralization of medical records, and no healthcare boards. Indeed, government involvement in the healthcare industry would be substantially reduced by eliminating Medicare and Medicaid. The exploding unfunded liability problem associated with these programs would disappear.

A national sales tax would promote transparency and convey the true cost of the program. If in the future it is argued that we need to increase the size of the voucher, the answer will be, "We can do that but it will require increasing the national sales tax to X percent." Discussion about healthcare policy would no longer be clouded by the complexities of the current system, which hides costs, and costs will no longer be shifted to future generations.

What about skyrocketing healthcare costs? This is largely a scare tactic aimed at drumming up political support. The primary reason for rising healthcare expenditures per capita is that our population is aging and the elderly consume more healthcare. This jump has nothing to do with healthcare becoming more costly. Adjusted for actual procedures and inflation, healthcare costs are in many cases falling.

So to "solve" this "problem," there is really nothing one can do but reduce the higher level of healthcare consumption by the elderly. But since our later years are when we most need healthcare, that is like having water insurance that works while in the Great Lakes but not while in the Sahara. The limiting of healthcare services for seniors is happening in Western Europe and Canada today and it is unconscionable.

Special interests won't like this voucher program because it thwarts their ability to manipulate the system. Liberals won't like it because they don't trust markets. Conservatives won't like it because it is too radical. But if conservatives, libertarians, and independents are as frightened of nationalized healthcare as they claim to be, they should take advantage of this opportunity to move the system sharply in a free-market direction while dealing with the problems of cost-shifting caused by uninsured persons. If they don't, it's only a matter of time before another attempt is made to nationalize healthcare.